FINfacts™ XXIV – No. 333 | August 31, 2022

MARKET RATES
Prime Rate 5.50%
1 Month LIBOR 2.56%
6 Month LIBOR 3.59%
5 Yr SOFR Swap 3.09%
10 Yr SOFR Swap 2.94%
5 Yr US Treasury 3.28%
10 Yr US Treasury 3.12%
30 Yr US Treasury 3.21%

INTRODUCTION


RECENT TRANSACTIONS
$120,115,000 Permanent Financing for 526-Unit Multifamily Property, Los Angeles, CA

Rate: 4.38% Fixed (T+ 1.45%)
Term: 10 Years
Amortization: 30 Years with 7 Years IO
LTV: 45%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners has secured $120,115,000 in permanent financing for a 526-unit multifamily property, the Da Vinci Apartments. The Property is a 98% occupied, institutional quality, 5 and 6-story residential complex located in Downtown Los Angeles. The loan is fixed for 10 years at 4.38% with interest-only payments for the first 7 years.

Despite Los Angeles’ COVID-based eviction and rent control issues, GSP was able to work with the Lender to underwrite the NOI to accomplish the targeted loan amount. GSP also facilitated an early rate lock to protect against changes in the interest rate prior to the loan’s closing.

Advisors

Gary M. Tenzer
Managing Director & Principal
Dasha Savchenko
Vice President

Bridge Financing for Two Retail Properties; Hollywood, CA

Rate: 5.00% Fixed
Term: 2 Years
Amortization: Interest Only
LTV: 55%
Prepayment: Open
Guaranty: 50% – Burns off at DCR Hurdle
Lender Fee: 0.50%

Transaction Description:

George Smith Partners successfully placed a $3,245,000 bridge loan fixed at 5.00% for two years. The loan will have an initial funding of $2,400,000 with the remainder distributed in 6 months’ time to accommodate funding structures for the Borrower’s needs. The Collateral is two adjacent commercial properties located in Hollywood, CA. One building is completely vacant and the other is a dated laundromat. The proceeds will cover renovation and leasing costs allowing the vacant building to stabilize, then provide additional proceeds to re-tenant the laundromat once the other building is cash flowing. The initial term sheet was structured at Prime plus a spread of 0.50%. When interest rates spiked during the closing process, GSP negotiated a fixed rate of 5.00%. GSP sourced a lender able to provide cash-out financing, limited recourse that burns off at full stabilization and fix their interest rate for the life of the loan.

Advisors

Steve Bram
Managing Director & Principal
David R. Pascale, Jr.
Senior Vice President
Allison Higgins
Senior Vice President
Nick Rogers
Vice President

SPEAKERS CORNER


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HOT MONEY
Quick Close, Non-Recourse Land Financing

George Smith Partners has identified a capital provider financing high-leverage, non-recourse land loans. Floating rate pricing starts at SOFR+8% with the ability to close in less than 30 days. This lender is competitive in special situations and opportunistic projects and will upsize current land loans if the borrower has increased the value of the parcel during their ownership. This portfolio lender recently funded 100% of actual costs due to substantial value created during the pre-development cycle. Basing proceeds off the property’s present value, loan sizes range from $20,000,000 – $250,000,000 for transactions nationwide.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Officials’ Stress Rates Will Be High “For Some Time”

Stock and bond markets have sold off every day since Fed Chair Powell’s remarks last Friday at the Jackson Hole Economic Policy Symposium. His eight-minute speech mentioned the word inflation over 40 times. Any hopes of the famous, or infamous, “Fed put” being invoked in this cycle were wiped out as he said, “While higher interest rates…will bring down inflation, they will also bring some pain.” He also set markets straight as to the “schedule” of upcoming rate hikes.

The 75 basis point increase in September is now at 70% likelihood in the futures markets.   Markets expect increases of another 75 basis points total at the November/December meetings.   That would bring the Fed Funds target rate up to 3.75% – 4.25% to open in 2023. That is right where several Fed officials are pegging the “Terminal Rate” – the highest rate hike in this cycle. Markets were assuming that the Fed would then “pivot” relatively quickly with rate cuts in response to a slowing economy. But Powell‘s comment on Friday sought to tamp down those expectations: “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.” NY Fed President John Williams chimed in on Tuesday in a live interview: “We’re going to…have restrictive policy for some time…This is not something we’re going to do for a very short period.” He chimed in on the Terminal Rate speculation, saying that “we do need to get real interest rates…above zero.”    “Real interest rate” = the nominal interest rate minus inflation.  Positive real interest rates would mean setting the Fed Funds rate above the inflation rate. Core PCE is at 4.6% today. Assuming inflation drops to about 4.0% early next year, Williams is estimating the terminal rate at about 4.00% – 4.25%. All of this “forward guidance” has therefore upended market expectations of the pace of rate cuts in 2023. This is causing the 10 Year Treasury to increase as it closed today at 3.21%. Of course, everything is data dependent – but officials are stressing that a change in this stated policy will require a sustained and unambiguous downward trend, not just “a few reports.” Stay tuned…

By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Todd August, at (310) 867-2995 or taugust@gspartners.com


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